Capital losses can be realised on assets such as shares or property and they arise when an asset is sold for less than the original purchase price. Capital losses can also be claimed on assets that you still own if they become ‘worthless’, also known as a negligible value claim.
A capital loss must first be claimed to be allowable and they must be claimed within four tax years of the end of the tax year in which the capital loss arose. For example, losses arising in 2018/19 must be claimed by 5 April 2023 if you want to use them.
With the reduction in the annual exempt amount from 6 April 2023 (£6,000 for the 2023/24 tax year and £3,000 for the 2024/25 tax year onwards), claiming capital losses when they arise will help in reducing the amount of capital gains tax payable if you have capital gains in the future.
Generally, capital losses cannot be offset against income, they can only be offset against capital gains (with limited exceptions). Capital losses are first used to offset capital gains that have arisen in the same tax year. They must be offset in full, with no preservation of the annual exempt amount.
If there are no capital gains realised in the same tax year as the capital loss or, if there are excess losses after offsetting the capital gains in full, the unused capital losses can be carried forward to utilise against future capital gains. Brought forward capital losses must be used when there are capital gains available but the offset is restricted to ensure the annual exempt amount is not wasted.
Capital losses can be claimed on your tax return or amended tax return if within the amendment window. A return can be amended within 12 months of 31 January following the end of the tax year, for example, 2021/22 tax returns can be amended up to 31 January 2024. Alternatively, if you are out of time to amend your tax return to include the capital loss claim, a standalone written claim can be submitted to HMRC.